If you are a long term investor, you tend to always make returns in equities. In fact, equity shares have known to outperform other asset classes in the long term. We have selected a few stocks that offer great opportunities for long term investors in 2018. These include stocks that have a very low debt to equity ratio and which have shown good growth over the years. These stocks have the tremendous potential to generate money in the long term.
Here are a few stocks that are from sectors such as consumer, media and banking.
Jammu and Kashmir Bank
Jammu and Kashmir Bank is probably one of the cheapest banking stocks to own from the private sector space. The stock has fallen from levels of Rs 95 to the current levels of Rs 48. At the current price the stock is an excellent buy.
The bank has a very dominant share in its home state of Jammu and Kashmir, with 85 per cent of its deposit from the home state. This protects the bank from interest rate competition with other banks to a certain extent.
Over the last few years, Jammu and Kashmir Bank has managed to improve its net interest margins to 4 per cent, from the earlier three per cent.
Jammu and Kashmir Bank: Non performing assets to moderate
The gross non performing assets at the bank was placed at 9.96 for the quarter ending March 31, 2018, which reduced from 10.08 in the previous quarter ending Dec 31, 2017. We believe that there is a full possibility that non performing assets would moderate in the coming quarters as revival in the J&K economy takes place.
If you see the stock is currently trading below book value and the bank has a very small equity capital of around Rs 55.70 crores. This means a slight revival in the fortunes of the bank could send the stock soaring. The price to book value of the bank is also at a very decent 0.49 times. The bank's shares have also halved in value over the last few months, which makes it an interesting pick at the current levels.
The bank can deliver an EPS of Rs 11 by 2018-19, which translates into a p/e of just over 4 times. A very cheap stock to buy.
South Indian Bank
South Indian Bank has crashed to a new 52-week low and offers investors ample opportunity for long-term growth.
The bank reported a good set of numbers for the year ending March 31, 2018. Advances at the bank saw a superb growth of 17 per cent, while retail, SME and gold loans saw a sharp jump of 20 per cent in growth.
What's most interesting is the fact that the bank has zero corporates, under its watch list on corporate loans. During FY 2018, the Current and Savings Account grew by 9 per cent, while net profits jumped 51 per cent to Rs 114 crores, from just Rs 76 crores.
South Indian Bank: Bright prospects for the longer term
The bank has laid out a strategy for long term growth. Accordingly, the bank will ensure more efficient branches for faster processing of loans, with a clear road map for mobilizing funds through CASA.
It will also increase its POS and ATM network. The bank will also lay an emphasis on housing finance, with a retail hub in Kochi. The SME loan book, which has grown rapidly, will see the appointment of a JGM for better coordination between the regions.
The bank reported an EPS of Rs 1.85 for FY 2017-18. Going ahead, it is possible that South Indian bank ends the year 2018-19, with an EPS of Rs 2.2 at the very least. This means the stock is currently valued at just 10 times one year forward earnings.
If you value the stock at even 15 times p/e, the stock should yield a decent return in the short to medium term. South Indian Bank is a good stock to own for the long term.
One reason to recommend the Vedanta stock is the fact that the shares price has crashed to a 52-week low. The company has a very diverse range of activities that include mining and production of iron ore, zinc, silver, aluminium, copper products, power etc.
The company also has presence in the oil exploration business, through the erstwhile Cairn Energy.
The company has plans for increase in production of oil to 220-250 kboepd for FY19 (estimated) and 275-320 kboepd for FY20 (estimated).
Vedanta will also increase its mining capacity for zinc to 1.2 million tonnes from 1.5 million tonnes.
The shares of Vedanta are trading below book value at a price to book of 0.80 times. The stock has fallen from levels of Rs 355 to Rs 210, which makes it attractive to buy.
Vedanta shares are also trading around 10 times one year forward earnings of 2018-19, which is not very expensive. One can buy the stock for long term gains.
Of all the Sensex stocks, one must admit that the Tata Motors shares is perhaps the most undervalued at the moment. The stock is very close to its 52-week low as well at a price of Rs 256.
Tata Motor's management recently shared its "Fit for Future and Turnaround 2.0" strategy for the domestic and JLR business.
Under Turnaround 2.0, the company's efforts would be to enable its passenger vehicle business to be "self-funding and profitable", build confidence and acceptability for its portfolio from old and new buyers, which in-turn will lead to a gain in market share.
"With Turnaround 2.0, we focussed on the domestic commercial vehicle segment and regained market share. We demonstrated that we could de-bottleneck the supply chain. Now, we are looking to implement the turnaround plan for passenger vehicle business," Guenter Butschek, MD and CEO of Tata Motors said recently.
Tata Motors: Cheap valuations and solid pipeline
Cheap valuations and a solid product pipeline remain the key for confidence in the stock of Tata Motors. In fact, in the next couple of years, Jaguar Landrover may see a complete range of electric and hybrid vehicles, which should boost confidence in the company.
A clear strategy is also visible for turning around the domestic passenger vehicle business with a new and innovative product launch. However, accelerated product development expenses and muted volumes could be a drag in the next few quarters.
The stock of Tata Motors is attractive on the valuations front, especially against the backdrop of buoyant management guidance. Most brokerages see an EPS of Rs 40 for the stock by 2018-19. If you value the stock at 10 times, one could see a price of Rs 400 at the very least from the current price of Rs 265.
Best small cap stocks to buy
In the past some small cap and mid cap stocks have given excellent returns. In fact, small cap stocks have beaten returns from large cap stocks, which have made them excellent bets for the long and short term. Please click on the link to see some excellent small cap stocks ideas.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author owns shares in Jammu and Kashmir Bank.